Some numbers on Zara

The Spanish fast fashion retailer Zara (a division of Inditex) has been a favorite topic in OM classes for a while. They are a successful, innovative firm whose competitive advantage really lies with their operations. The distinctive components of their operations (e.g., responsive production, excellent logistics) have been well documented. That has not kept The Economist from offering up a new article on the company which may not offer any great insight but has some interesting numbers (Global stretch, Mar 10).

The secret of Zara’s success is its speed—four weeks for a new fashion idea to hit the shops—and the feedback that store managers send to head office, to help it fine-tune its ideas. There is also firm control from Spain, the sole logistics hub. Although 34% of Inditex’s manufacturing is outsourced to Asia, and 14% to parts of Europe including Turkey, those tend to be the more basic items. The high-fashion stuff, 49% of what it sells, is cut and finished in Spain though some sewing is done elsewhere.

So this structure clearly makes sense. Long lead times and the concomitant inventories are more tolerable for basic T-shirts and such that will essentially always be carried. Labor savings from sourcing in Asia are likely more than enough to offset the added holding cost. That wouldn’t be true for products with more “fashion content” that may sell today but not tomorrow. Keeping that work in or near Spain shortens the lead time and avoid supply-demand mismatches.

But how long will Zara be able to keep with this model? Particularly if the real growth opportunity is in Asia.

A big question, however, is how far [Inditex] can go on growing from its home base. Now that 15% of its sales are in Asia, does it make sense to run product design and logistics just from Spain? Some clothes it has made in China are shipped to Spain and then back to shops in China. The chief executive, Pablo Isla, sees no need for a second product base: “We’re not thinking of replicating the brain in Asia,” he says, “though maybe logistics.”

A second logistics hub clearly makes some sense. I am not sure, however, why they are not more open to moving production of fashion items to Asia if they are going to be sold in Asia. Maybe they fear a break down of communication between designers and production or would lose some economies of scale in production back in Spain. Still I have to think that producing in Asia for Asia would shave a significant amount of time from the process.

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9 Responses

I’m with you. It’s amazing that Zara has demonstrated this excellent operations logistics model that provides a competitive advantage and then sets it up for the huge Asian market as a classic long lead time supply chain.

Someone else will figure it out for the Asian market and seize the opportunity.

I think that having an Asian operation would provide a great advantage in cross-fertilization of ideas. Isn’t fashion all about new ideas?

[…] Arguably, no. Much has been written about how Zara has grown and how their operations supports a business model that encourages customers to buy now and at full-price as opposed to waiting for an inevitable sale. Indeed, there is a Harvard case on the firm that has been around for almost ten years. Even some of the more interesting parts of the article — such as speculation on whether Inditex needs to replicate their Spanish operations in Asia in order to support their ambitious growth plans for China — have been talked about before. See, for example, this post. […]

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